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Income Security Reform and the Concept of a Guaranteed Annual Income

Grady, Patrick and Kapsalis, Constantine (1995): Income Security Reform and the Concept of a Guaranteed Annual Income.

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Abstract

This paper is focused on a specific reform strategy - the Guaranteed Annual Income (GAI).It addresses an age-old issue of social welfare programming in a market economy. How do we maintain an incentive to work yet provide a safety net for those shaken loose by large-scale yet seemingly continuous change? Why participate in a losing cause if the consequences of not participating are not all that bad materially? The problem is particularly acute when the financial rewards of work and the type of work available both continue to deteriorate for a very broad class of people, as is happening in Canada. Even worse, how does one prevent the development of a welfare culture that is tolerated, if not totally accepted, to the point that it becomes immune to moral suasion from the broader community?

The Guaranteed Annual Income concept has been debated for some time in academic circles and widely discussed in a larger public policy circle. This paper briefly documents the various public reviews of the concept in Canada over the past 25 years. It details the major benefit of a GAI, principally in terms of reducing the disincentive to work in the current program. It also outlines the downside of a potentially much more expensive program as benefits are spread across a larger population of working poor.

The paper demonstrates that a modest federal GAl is financially viable even in the current context of fiscal restraint. Ample monies could be found from a reform of the Unemployment Insurance program by reducing eligibility, reducing benefits, and moving to experience-rated premiums for employers. These reforms would reduce the program's considerable income redistribution between regions, individuals, families, and employers. The result would be a program that is more clearly an insurance program against the adverse consequences of short-term unemployment. The paper’s estimates of savings and costs are slightly dated now because of government changes since the paper was written, but the general point remains intact.

As noted, even in administrative terms, the federal government has already gone a substantial way in its tax structure toward being able to implement a GAl. Moreover, under such a program the federal government would work directly with low-income people. In the most cost-effective manner, that is, by sending money. In doing so, it would also have the opportunity to maintain its profile in the broader community. This would leave the provinces, and through them the municipalities and other agencies, free to deal more closely with those needing other forms of assistance. Inevitably these will be more selective, and therefore more information intensive and probably more labour intensive. That is as it should be if these governments are to pursue their respective competitive advantages.

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